‘Regressive’, consumer group says of GST

BY BOO SU-LYN

OCTOBER 25, 2013

People browse inside a shopping mall in Kuala Lumpur October 23, 2013. — Reuters pic

KUALA LUMPUR, Oct 25 — The Consumers’ Association of Penang (CAP) expressed dismay with the tabling of the Goods and Services Tax (GST) in Budget 2014 today, calling it a “regressive” tax that will affect the poor more than the affluent.

The consumer group pointed out that there are many products that the poor and the lower middle-class must purchase that will not be exempt from the GST that will be implemented at 6 per cent starting April 2015.

“GST is regressive and exacerbates inequality,” CAP president SM Mohamed Idris said in a statement today.

“Since the poorer in society spend a larger portion of their income on these purchases, the tax incidence on them is higher than the rich,” he added.

The GST, which will replace the current Sales and Services Tax, comes amid public concerns that it will increase the cost of living through a hike in the inflation rate, especially after a fuel subsidy cut in September.

To offset the new tax, Prime Minister Datuk Seri Najib Razak announced today that personal income tax would be reduced by 1 to 3 percentage points, depending on the income bracket.

Idris said, however, that Putrajaya should raise revenue through a “progressive tax system” by reintroducing the inheritance tax, or estate duty that was repealed in 1991.

“There should also be a higher marginal tax rate for the super rich. The present maximum income tax rate at 26 per cent is too low,” he added.

Najib announced that the 26 per cent maximum income tax rate would be reduced to between 24 and 25 per cent, effective 2015.

He also said that a one-off payment of RM300 under the 1 Malaysia People’s Aid (BR1M) cash aid programme will be made following the implementation of the GST scheduled for April 1, 2015.

The prime minister added that the GST will not be imposed on essential food items like rice, sugar, salt, and cooking oil; piped water supply; government services like the issuance of passports, licenses, healthcare services and school education; or transportation services like buses, trains, LRTs, ferries, boats, and highway tolls.

Sales, purchases and rentals of residential properties, as well as selected financial services, are also exempted from the GST.

The prime minister pointed out that Malaysia’s GST rate of 6 per cent is among the lowest in Asean countries, noting that the GST is fixed at 7 per cent in Singapore and Thailand.

The GST is a consumption tax, meaning all Malaysians will be taxed according to their level of spending, regardless of income. This differs from income tax that is only applicable after a certain salary level is exceeded.

The tax was first announced during Budget 2005 and was originally scheduled to be implemented in 2007, before it was deferred.

The GST Bill was then tabled for the first reading in 2009 for implementation in late 2011, but was withdrawn during the second reading in 2010 following fierce public resistance.

But Najib signalled yesterday that Putrajaya is finally ready for the measure, following the revision of its sovereign debt outlook from “Stable” to “Negative” in July by rating agency Fitch Ratings owing to rising government debt and budget deficit.

Malaysia runs a relatively high government debt of 53 per cent of its gross domestic product (GDP) ― just under the legal ceiling of 55 per cent ― and has one of Asia’s highest household debt levels, at over 80 per cent of GDP.

Putrajaya has stated that it aims to reduce its budget deficit-to-GDP ratio to 4 per cent this year and gradually to 3 per cent by 2015.

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